Public Private Partnerships : irregular expenditure solution

2017/18 South African National Budget Expectations

On 16 November 2016, the Auditor-General reported audit outcomes for national and provincial government had slightly improved over the last three years. Nevertheless, the report indicated that irregular, fruitless and wasteful expenditure is still a challenge.

In fact, irregular expenditure increased by almost 40% to R46.36 billion in 2015/16, compared to 2013/2014.

Deviations from supply chain controls such as emergency sourcing, sole supplier arrangements, lack of competitive quotes and extending existing contracts are all categorised under irregular expenditure.

Fruitless and wasteful expenditure was 14% higher than in 2013/14 at R1.37 billion with just six auditees being responsible for more than 70% of this expenditure.

Government is not necessarily more wasteful than private companies. However, there are forces that operate on both private and public entities and causes them to be more efficient: competition and commercial imperatives. Because competition and commercial imperatives often (but not always) are more operative and rife in the private sector, the private sector is often less wasteful.

This then presents a prime opportunity for collaboration between the two sectors. Public sector entities can be resource providers, information sources, or regulators, providing an environment where the private sector can develop and deploy solutions which generate growth. The private sector can provide knowledge, finance and innovation, and the ability to deliver products and services at scale, allowing governments to achieve broader social and economic objectives. The appropriate pairing of these capabilities can result in powerful outcomes.

Last year’s Budget emphasised partnerships among economic role players by prioritising education and infrastructure investment, supporting employment creation in order to build a capable developmental state. Key initiatives include:

• Reducing the budget deficit to 2.4% by 2018/19.

• Cutting expenditure by R25 billion over three years, mainly by curtailing personnel spending;

• Tax increases amounting to R18 billion in 2016/17 with a further R15 billion a year in 2017/18 and 2018/19;

• An additional R16 billion allocated to higher education over the next three years, by reprioritising expenditure plans;

• An additional R11.5 billion for social grant allocations over the next three years; and

• Freeing up funds for drought relief, particularly for the farming sector and water-stressed communities.

It is evident that government is spending significantly on the priority areas of health, education, social welfare, water and transport. The issue then is not how much we are spending but whether we are spending effectively. All else being equal and with no leakages in the system, the numbers given in the 2016 Budget should be sufficient to drive meaningful change and growth in the country.

Because competition and commercial drives reduce wastefulness, there is an opportunity for private sector to collaborate with the public sector. Government can further encourage collaboration with the private sector in innovating and later implementing solutions to reduce wastefulness. Ultimately both the private and public sector should have a common goal as they both stand to benefit from operating in an economically strong environment.

How can Deloitte help:

Deloitte’s Business-Process-as-a-Service (BPaaS) provides our clients with a unique and comprehensive approach to assess and deliver operational effectiveness.

As a service to our clients, our primary objective is to manage and execute business processes on behalf of clients either through short term or long term interventions.

We deliver efficiency and add value to clients consistently through the following primary models;

-               Resourcing & Project Execution

-               Outsourcing

Our approach leverages alternative resourcing models, leading edge technology and application systems by bringing together all of Deloitte specialist skills and methodologies to deliver relevant solutions to clients based on a business partnership model. Our team offers flexibility, aligned to client demands and innovation to manage today’s market disruptions.

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